Crypto Bros Want Your 401(k)
(AP Photo/Kin Cheung)
Despite FTX’s collapse, a lawsuit linked to the exchange’s investor is trying to force regulators to allow crypto into the retirement market.
An investment firm tied to the collapsed crypto trading platform FTX is also backing a company whose court battle could help funnel Americans’ retirement nest eggs into digital currencies, a Lever review has found. The legal campaign coincides with a push by crypto-bankrolled lawmakers’ to try to clear the way for retirement savings to be invested in the crypto market.
At issue is the Labor Department’s March guidance warning retirement plan administrators to “exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan” because the investments are so volatile. The agency promised a deeper investigation into crypto, and warned administrators that they “should expect to be questioned” if they helped direct retiree assets into the currencies.
Though nonbinding, that federal guidance is now the target of a lawsuit brought by an investment company offering crypto to its 401(k) clients. The firm is also backed by an investor in FTX. The suit aims to force regulators to retract the guidance, arguing that the government is acting as an “armchair financial adviser” in issuing such warnings.
The skirmish is the latest effort by peddlers of exotic and opaque investments to chip away at laws shielding the $6.4 trillion 401(k) retirement market from extreme risk. Two years ago, Wall Street firms successfully pressed the Trump administration to bless 401(k) investments in speculative high-fee private equity, hedge funds, and real estate assets, a decision the Biden administration walked back in December 2021, but did not fully revoke.
Now comes the push by the financial industry and crypto’s political allies.
Amid a regulatory vacuum, one of the country’s largest 401(k) recordkeepers, Fidelity Investments, with $1.4 trillion in 401(k) assets, began offering a crypto option for workers this fall. Just before that two senators bankrolled by the crypto industry encouraged a national television audience to invest their retirement nest eggs in the currency.
The lawsuit represents an escalation: It could block regulators from issuing warnings about these financial instruments, even as they implode.
Since January 1, both Bitcoin and the other main cryptocurrency, Ethereum, have lost more than 60 percent of their value, soaking ordinary investors. Meanwhile, more than $1 billion worth of customer assets have gone missing in the FTX collapse.
So far, losses from cryptocurrency have not caused a widespread crisis for retirees, because pension funds and 401(k) plans’ investments in crypto have been limited. The lawsuit could change that — even though many financial experts say the inherently speculative nature of crypto means it has no place in workers’ retirement plans.
“We’ve seen extreme volatility in crypto asset markets, with significant losses in a short amount of time. It’s difficult to separate fact from hype — you can’t tell what’s real or imagined,” said Micah Hauptman, director of investor protection at the Consumer Federation of America and former attorney with the federal Securities and Exchange Commission. “To the extent that fiduciaries are including these assets in plans, it’s hard to make a dispassionate analysis that this is in the sole interest of plan participants.”
Crypto Speculators Take Aim At The 401(k) Market
Former FTX CEO Samuel Bankman-Fried, whose company sent crypto markets into a tailspin by declaring bankruptcy on November 11, has repeatedly hinted at the Ponzi scheme-like nature of cryptocurrencies, suggesting that their asset values aren’t tied to underlying assets like stocks and bonds, but instead fueled by inflows of new capital from unsophisticated investors.